Auto Dealers Whine That Tesla Stores Are Illegal

Buying a new car has always meant one thing: going into a dealership, finagling a price and driving something off the lot. Tesla Motors is turning that business model on its head with high-end retailers that have automotive dealership associations crying foul.

The Massachusetts State Automobile Dealers Association, among others, is waving around a decades-old law as it calls the Silicon Valley automaker’s network of “Tesla stores” illegal. Dealership associations have long lobbied to make it illegal for automakers to sell cars directly to consumers. The idea behind the protectionist law is to prevent automakers from killing competition and driving independent franchises out of business.

The most recent example of independent dealers flexing their muscles involved a flagship dealership Chrysler owned in Los Angeles and sold to a local franchise to avoid endless lawsuits. For Tesla, though, it’s a bit different, because it isn’t actually selling cars.

Tesla’s veep of sales, George Blankenship, came from Apple, where he launched the wildly successful line of Apple stores. Despite obvious parallels between Apple and Tesla stores, the two couldn’t be any more different.

Apple stores sell Apple stuff. You walk in, hand over a wad of bills and walk out with, say, a MacBook Air. Tesla stores, according to the automaker, are merely educational. No one is driving home in a Model S. If, after the sales pitch, you’re ready to pull the trigger, you are politely directed to a computer to make your deposit and place your order.

That order, strictly speaking, is filled in California when the car is built. Once your S rolls off the line, you have the option of having it delivered to your home or picking it up at the factory in Fremont, California. It’s a loophole of sorts, one being played out at 17 Tesla stores in 10 states and Washington, DC. In a statement to Wired, Tesla makes it clear that, “in every location, we work to comply with all state and local laws and regulations.”

But according to Automotive News, at least four states have expressed concerns with this new retail model, despite Tesla doing its best to meet each state’s dealer laws. “Anything that gets you to the executed contract is part of the sale,” Bob O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association, told the auto industry publication.

So where’s the line between selling a car and simply “educating” potential buyers? No one can really say, because it isn’t well defined. And that’s got dealer organizations in a huff.

Beyond the issue of sales is how these vehicles will be serviced, as most of the Tesla stores are located in high-end shopping malls, where service isn’t just impracticable, but impossible. Tesla says it is building dedicated service facilities located close to Model S owners.

“By March 1 of next year, more than 90 percent of all current Model S reservation holders in North America will be within 100 miles of a Tesla Service Center,” company spokeswoman Shanna Hendriks told Wired. “And more than 80 percent will be within 50 miles.”

But navigating the legal definition of a dealership won’t be as easy, as each state has its own laws governing vehicle sales – all of which are archaic barriers to entry that Tesla will be forced to challenge.